Friday, June 26, 2015

Jump! on
Demand is T-Mobile’s variation on Sprint’s device leasing idea that started
with the iPhone (i.e., iPhone for Life). The lease term is for 18 months and users may
trade-up up to three times (or upgrade to different smartphones [“superphones”])
in a year.An enterprising customer can
milk six upgrades within this term at months 1, 2, 3 and then in months 13, 14
and 15 (or variations).

Jump! on Demand’s availability begins on June 28, 2015 and
to kick the program off, a limited time promotion of an iPhone 6 (16 GB) at
$15/month will be the go-to market poster child.While this shares the Jump! moniker
(Un-carrier 2.0), there isn’t any direct connection aside from the theme of
quick device upgradability.

Ability to swap smartphones.Customers may swap three times in a year (12
months) at AND a maximum of six times in 18 months.

When a customer upgrades or swaps a smartphone,
they receive a new, not refurbished, smartphone.

WHAT’S IN IT FOR T-MOBILE?

Customer
retention: Every carrier’s base have those early adopters who want the
latest and greatest.Jump! on Demand
appeals to that base with up to six swaps in the short 18 month lease term. This in
essence furthers these customers’ device addiction. Additionally, the Jump! on Demand’s device
portfolio contains the most desirable flagship ‘superphones’ (for now, i.e., iPhone 6, iPhone 6 Plus,
Galaxy S6, Galaxy Note 4, LG G4).

New customer
acquisition: Any way to get a flagship device for cheap will draw
attention. Coupled with plan promotions and lower pricing against the big two
carriers, Jump! on Demand is a big and important weapon in the T-Mobile
marketing arsenal.

Overall
net additions: In the Q1 earnings call, T-Mobile increased their postpaid
net add guidance from 2.2/3.2M to 3/3.5M. Note also that they added 1.1M postpaid
customers in 1Q15 and that they intended to ‘front load’ the adds.Of course front load could mean three quarters
instead of the first half of ’15.

Better vendor
pricing leverage: Though the price
may be a wash from the customer facing view, large carriers with more scale
look to limit their device acquisition costs. If a carrier can drive more
volume, lower per unit price usually bears fruit, which helps in the whole
profit picture.

WHICH COMPANIES WILL
FEEL THE MOST IMPACT?

·In the following order:

1.Sprint
– because the company is an alternative value leader against T-Mobile and those
customers who are drawn to the once unique leasing scheme has been topped.This also moves the focus for specifically
those “Cut Your Bill in Half” Verizon and AT&T customers onto
T-Mobile.If the decision makers are
device centric and price sensitive, then T-Mobile will be a prime
consideration.

2.Verizon
Wireless – T-Mobile is specifically gunning for Verizon because that’s
where the majority of the industry’s postpaid users are.The Never
Settle for Verizon campaign (a Test Drive [Un-carrier 5.0) on steroids) kicked
off on May 5th with a trial period from May 13th to the 31st
was extended until June 27.Extending a
switching campaign usually means that it is working.

3.AT&T
– T-Mobile has historically targeted AT&T back in the same GSM technology
days. I place AT&T last since of the big two, Verizon is the bigger fish in
terms of postpaid base. Moreover, AT&T’s retention efforts have paid off
tremendously in uber low churn metrics.The aggressive $0 Next messaging has also been widely by AT&T as a
key component of customer retention.

Apple stands to gain in terms of T-Mobile volume
based upon specifically the $15/month promotion.Normally $27.08/month, T-Mobile’s $12.08
discounting is akin to a subsidy but T-Mobile PR cringed at that word.Regardless of whether it’s filed as a
marketing cost, the discounting is real.Perhaps like in a car leasing analogy, a lower monthly price may be had
with assigning a higher residual at lease end.

Samsung, LG and possibly HTC may likely see more
flagship device volume movement since Jump! on Demand calls for new and not
refurbished devices. Logically, if there is the possibility of long term device
swapping, more units should be in the pipeline. However, the iPhone promotion
may increase the volume gap in Apple’s favor.

Refurb and secondary market companies will sell
increase business volumes. Though it’s logical that ‘used’ devices will feed
the insurance side and some will find its way into MetroPCS, the secondary
market whether domestic or international will see some benefit.

COMPETITIVE RESPONSE?

There are now two national players offering
leasing. AT&T and Verizon may hold off but they cannot ignore this device
payment approach. The concept is simple and by all accounts from Sprint’s
initial success, customers like it.T-Mobile adopting the approach validates the concept in the marketplace.AT&T and Verizon will have to respond and
it has to be before Q4.If not, they
will be even more vulnerable.

Sprint will need to modify its leasing approach, at a minimum expanding the term options, also before Q4. Matching the number of times to upgrade also needs careful consideration and figuring out a positive business case. Sprint has already stated that they can get favorable device pricing given SoftBank's global buying power. Sprint needs to have a plan in place if it is to keep its positive net add momentum of which device leasing plays a crucial role.

Aside from national players, regional players
may or may not join. Large regional carrier US Cellular joined the equipment
installation plan fray.For that
carrier, an EIP is now competitive tablestakes against competitors, and a component
of returning to positive postpaid net adds (after a couple of years in the
negative territory).